Thai economy in August 2008 expanded at a decelerated pace due to slow down in domestic and external demands. However, economic stability improved from lower inflation given declining oil prices and the impact from six months government economic stimulus package (announced on 15 July 2008). 1. Private consumption in August 2008 continued to expand but showed sign of slowing down. Consumption indicator from real-term value-added tax collection grew at a decelerated pace at 9.5 percent (y-o-y), slowed down from the growth of 23.3 percent (y-o-y) in the previous month. Import volume of consumer goods also grew at a slower pace at 14.8 percent (y-o-y), decelerating from 40.7 percent (y-o-y) in the previous month. Consumption indicator for durable goods as shown by the growth of motorcycles sales in August decelerated to 4.6 percent (y-o-y), after a high growth of 16.3 percent in July, reflecting slowing trend in consumption in the rural area. This is consistent with the passenger car sales which expanded at a decelerating pace at 20.3 percent (y-o-y), compared to a growth of 27.5 percent (y-o-y) in the previous month. Meanwhile, the Consumers’ Confidence Index in August, which is the leading consumption indicator decreased to 70.5 points from 71.8 points in July due mainly to the effect of political instability at the end of August which adversely impacted consumers’ confidence. 2. Private investment in August 2008 showed clear sign of slowing down from the previous month. Indicator for equipment and machinery investment measured from import volume of equipment and machinery decelerated sharply to 1.8 percent (y-o-y) from a strong growth of 28.4 percent (y-o-y) in the previous month. Consistently, investment indicator from commercial car sales in August continued to contract for the 4th consecutive months at —25.7 percent (y-o-y) caused mainly by slow down in pick-ups and trucks sales. Moreover, investment indicator for construction-related activities from real-estate tax collection decelerated to 7.8 percent (y-o-y) from high growth rates in the previous 4 months (April to July 2008). 3. Fiscal indicators in August 2008 showed net government revenue collection amounted to 181.4 billion Baht in which tax revenue was 181.0 billion Baht, contracting by —14.9 percent from declining income-based tax revenue which declined by —21.8 percent due to deadline extension of half year corporate income tax payment to 1 September 200. Consumption-based tax (VAT) expanded at 13.7 percent (y-o-y), decelerated from 33.3 percent (y-o-y) in the previous month due to declining VAT collection for imported goods and lower price level in August. Total government expenditure in August amounted to 124.6 billion Baht, growing at 1.5 percent (y-o-y) in which current expenditure disbursed at 107.8 billion Baht, expanding by 6.4 percent (y-o-y), while capital expenditure disbursed at 12.6 billion Baht, contracted by —27.0 percent (y-o-y), due to significant disbursement of capital expenditures to the government agencies and local authorities in prior months. Meanwhile, during the first 11 months of Fiscal Year 2008 (October 2007 - August 2008), total government expenditure disbursed at 1,389.0 billion Baht, or 83.7 percent of FY 2008 budget framework (1,660 billion Baht). 4. Export value in August 2008 amounted to USD 15.9 billion, expanding by 14.9 percent (y-o-y) decelerated from 43.9 percent (y-o-y) growth in the previous month. Export value growth comprised of 15.6 percent (y-o-y) expansion in export price, while export volume contracted at —0.6 percent (y-o-y). Export volume contraction came from slowing exports of electronics and electrical appliances goods, while automobile and agri-manufacturing exports continued to expand well. Import value in August 2008 amounted to USD 16.7 percent (y-o-y) expanded by 26.9 percent (y-o-y), decelerated from the previous month’s growth rate of 55.1 percent (y-o-y). Import value comprised of 16.6 percent (y-o-y) expansion in import price while import volume grew at decelerated rate at 8.8 percent (y-o-y). Slowing import came mainly from capital and machinery goods. As a result, higher import value compared to export value resulted in trade balance deficit of —0.8 billion USD in August. 5. On the supply side, economic indicators in August 2008 showed that agricultural sector expanded well, while manufacturing and service sectors from tourism decelerated from the previous month. Agricultural Production Index (API) in August continued to expand well at 10.9 percent (y-o-y) thanks to increasing main crops production such as major rice, second rice, tapioca while rubber and palm oil production slowed down from previous month. On the other hand, Manufacturing Production Index (Preliminary) slowed down to 4.5 percent (y-o-y), compared to 10.2 percent (y-o-y) in previous month due mainly from slowing production in the automobile and furniture sectors. Service sector from tourism in July expanded at slower pace as number of in-bound tourists in July was recorded at 1.27 million persons, expanded at 9.3 percent (y-o-y), decelerated slightly from 11.7 percent (y-o-y) growth in June. This was due to the negative effect of high oil price, which led to higher airfare costs and fuel surcharges, and subsequently reducing number of in-bound tourists. 6. Overall economic stability remained strong. For external stability, international reserves at the end of August stood at 101.2 billion USD, which was more than 3.9 times of short-term external debt. Internal stability improved following declining inflation. Headline inflation in August decreased to 6.4 percent (y-o-y), from 9.2 percent (y-o-y) in July, due to declining oil and food-related prices and the impact from the six months economic stimulus package. Unemployment rate in July remained low at 1.3 percent of the total labor force. Public debt to GDP as of July was at 35.4 percent, remained well below the 50 percent public debt ceiling under the Fiscal Sustainability Framework. Source: Fiscal Policy Office / www.fpo.go.th